This week the main state institutions of Latvia responsible for economy in one form or another competed with one another in their predictions for GDP growth in 2016. What is interesting is that serious competition was noticed for tens of a percent.

Ilmars Rimsevics, Governor of the Bank of Latvia, had previously warned about relaxing too soon after the last crisis. It is too soon to relax, he believes. Although Latvia’s GDP continues to grow, rates are becoming slower in the country and Eurozone. He had warned that the central bank would review its GDP outlook. This promise was kept. This week, the Bank of Latvia announced that its GDP outlook has been reduced from 2.7% to 2.3%.

In its assessment, the bank used poor indexes in Q4 2015. These indexes were related to reduced investments and exports, as well as the decline of VAT in construction and financial services. A slight reduction was also noted in the processing industry. Although the Bank of Latvia had predicted that economic growth would be the slowest of the year, the decline of 0.3%, based on seasonally adjusted data in comparison with the previous quarter, turned out an unpleasant surprise. All of that mainly provided for the reduction of the GDP outlook for 2016.

The central bank’s position on this was not taken well by Economy Minister Arvils Aseradens, who said that reducing the GDP outlook is too soon even considering economic trends in the EU. The Economy Ministry believes there are other indexes that can be used. For example, the situation on the labour market continues to improve and entrepreneurs successfully adapt to new export markets. This is why the ministry does not intend to reduce its GDP outlook of 3.2%.

Finance Ministry predicts GDP growth will be 3% in 2015. This institution prepares its own GDP outlook twice a year – one in the first half of February for the annual Latvia’s Stability Programme that is later submitted to the European Commission and one in June for the development of the next year’s budget.

GDP growth outlook of the European Commission is currently 3.1% and that of IMF is 3.3%.

Reaching zero

The Bank of Latvia had also reduced its inflation outlook to 0%. Previously the central bank had predicted the average annual inflation would be 1.3% in 2016. As noted by the institution, this year’s inflation will be low because of multiple factors. One of them is slower wage growth in comparison with previous years.

Furthermore, it is unlikely 2016 will see a repeat of a rapid price decline on energy resources and food products. Nevertheless, prices on those products continued to decline at the beginning of 2016, which had a major impact on many sectors of the economy.

Inflation is expected to be increased slightly by tax changes, which affect prices of goods and services. Excise tax on fuel increased in January and excise tax on alcoholic drinks is expected to increase from April onwards.

In the negative zone

Even if GDP growth does become positive in spite of negative outlooks and inflation stays within 0%, deposit rates may go into the negative zone. The possibility of such a scenario was suggested by the head of the Baltic SEB Bank branch Riho Unt. According to him, clients of banks have yet to consider having to pay extra for their deposits. Nevertheless, such a possibility is being discussed. Previously, credit institutions served as a buffer zone between central banks and the market, but this cannot continue for long. If banks do not transfer their negative interest rates for deposits on companies, their policy will collapse, believes the banker.

SEB already applies negative interest rates for other financial institutions. Large companies with major deposits may be next, as well as medium and small enterprises.

Up until now, the bank has tried not to apply negative interest rates on private persons. Nevertheless, it is impossible to predict what may come next. In Switzerland, for example, private persons already pay for their bank deposits.

Some good news

In spite of the negative trends in many areas, there was a positive trend in one – birth rates in Latvia. It became known this week that Latvia has established a record in the European Union in regards to birth rates. The fertility coefficient (average number of births per woman) has increased almost 1.5 times over the course of the past 15 years, according to results of the latest Eurostat survey.

The highest fertility coefficient of 2014 was noted in France, where 2.1 births were noted per woman. Next are Ireland (1.94), Sweden (1.88) and the UK (1.81). The poorest demographic policy indexes were found in Greece (1.30), Cyprus (1.31), Spain and Portugal (1.32 in both). In its analysis of birth rates, Eurostat notes that the biggest recent baby-boom took place in Latvia: fertility coefficient was 1.21 in 2001 and 1.65 in 2014.

Members of the European Parliament have overwhelmingly supported what has been negotiated upon in the joint EU-UK progress report in Brexit talks and have recommended Brussels to move on to phase two negotiations on the future relations of the parties.

The silent period – the time for Christmas wishes – has begun. Snow covers Tukums, and the city slowly becomes white. Everything is quiet at Pils ielā. The phone rings, interrupting a quiet moment of watching snowflakes fall under the light of a lantern. «You’re here for us, aren’t you?» BNN goes to interview manager of Merci Cafe Anija Rabkeviča (23) and cafe’s founder Rinalds Pluģis (22). They tell about their experience of ‘surviving’ in Latvia.

Latvian Transport Ministry’s developed development plan for the transit industry, which was presented to Saeima’s National Economy Committee this week, states that raising competitiveness in the country requires subsidizing railway cargo transports.

Only political discussions were held proposal on the merge between Latvijas Mobilais Telefons and Lattelecom, and it is good that this matter has been taken off the agenda, said LMT President Juris Binde in an interview to Rīta Panorāma programme of LNT.

In the Estonian capital, the result of a legal dispute between water utility company Tallinna Vesi and the Estonian Competition Authority is that consumers are considered to be able to claim tens of millions of euros in compensation for overcharged water tariffs that have been in place for a number of years.

It was decided at a meeting of representatives of Latvian Association of Regions (LAR) that the party will not work with For Latvia’s Development. The party has also decided to start in 13th Saeima elections with its own list of candidates.

Italy has declared a state of emergency in its natural gas sector as a large explosion at a major natural gas hub in Austria killed one person, injured at least 18 and is prone to affect supplies in central Europe.

«To maintain GDP growth rate, the government should address priority matters like prevention of mandatory procurement component costs and electricity price rise to reduce costs for both businesses and residents. It is very important for employers to have the energy policy closely tied with production, because processing industry is the main driving force behind development of Latvia’s national economy,» says Latvian Employers’ Confederation (LEC) Director General Līga Meņģelsone.

The clients of Irish low-fare airline Ryanair will face inconvenience before Christmas as pilots and crew announced industrial action seeking to achieve union recognition and better conditions in the company, which is criticised by unions that it fails to offer pilots the same pay and conditions as its rivals.

Money laundering activities and grey economy are in decline in Latvia. However, corruption in the country’s public sector and smuggling activities remain serious problems for the national economy, as noted in the report on unaudited economy, corruption in the public sector and money laundering activities in Latvia published by Latvian Chamber for Commerce and Industry on Tuesday, 12 December.

Former Georgian President, now opposition activist in Ukraine, Mikheil Saakashvili, has been released from arrest by a judge, who denied a request from prosecutors to subject him to house arrest, but the case against him continues.

Latvia’s Justice Minister Dzintars Rasnačs has met with his Macedonian colleague Bilen Saliji, who arrived in Latvia to sign the Memorandum for Cooperation between Latvian Justice Ministry and Macedonian Justice Ministry.

The majority or 65% of Latvian respondents mentioned that whenever they make travel arrangements, they try to avoid regions in which there is a high probability of terrorist attacks or natural catastrophes, according to the latest Latvia Tours Travel Index.

The only offer extended to the now former state secretary of Latvia’s Interior Affairs Ministry Ilze Pētersone-Godmane to help her stay in state administration was the offer to become a candidate for the most of head of Riga Eastern Clinical University Hospital, as reported by Latvijas Avīze.

«Latvia continues supporting the solution that can be achieved through direct talks between Israel and Palestine with compliance of interests of both sides and making Jerusalem the capital of both countries. The European Union has to remain a reliable partner for Israel and Palestine. We have to continue the open dialogue with both sides and ensure EU’s unity in the Middle East peace process,» says Latvian Foreign Affairs Ministry’s parliamentary secretary Zanda Kalniņa-Lukaševica.

Countryside tourism businesses are threatened by unfair competition and growing bureaucracy, as emphasized by Latvian Countryside Tourism Association Lauku ceļotājs after discussing this season’s results at four regional business seminars.

As Estonia seeks to relocate part of government agencies out of the capital Tallinn, Estonian government ministers have been reminded that by the middle of January an action plan is required from them on the relocation of the central offices of 13 Estonian state institutions.

The volume of exports continued growing in November, reaching EUR 1,070,600 at the end of the month and setting a new record for exports for one month’s time. This export index is the highest in the history of statistical records in Latvia, Finance Ministry stated in its report, commenting on data from the Central Statistical Bureau.

Governments of European Union member states are aware of torture and abuse of refugees and migrants in Libya, Amnesty International has stated, insisting that trying to reduce migration, the EU is actively financially supporting a «system of abuse and exploitation» on the Mediterranean coast of Libya.